Customers of Kuwait's largest bank were astonished to receive a notification on their phones announcing that beginning June 1st, a fee of one dinar will be added to every local transfer done electronically by people.
This generated a hypothetical public discussion in which everyone criticised and opposed the decision to the point that the Kuwaiti Central Bank intervened and stopped the fee.
Of course, the heated debate in this regard raises the legitimate question of what prompted the National Bank of Kuwait to make the decision, given that it is one of the pillars of digital transformation in banking and advocates for increased infrastructure investment, and if they actually implemented it, and did they do so without a hitch, and if they did so without a hitch.
Initially, Kuwait's Central Bank Governor, Basil Al-Haroun, stated that collecting fees for local transfers via electronic channels needs getting a fresh written authorisation by submitting an application that includes arguments for charging the fee as well as the actual cost.
The regulatory authority clarified in a letter to the Federation of Banks that the request should be accompanied by a comprehensive study outlining the feasibility and global banking practices in this field within the context of a balanced relationship between banks and their customers that supports digital transformation and encourages customers to use electronic channels.
Al-Haroun noted that, as a result of previous CBK approvals for transfers, the banking and financial sector has seen radical changes toward digital transformation and electronic channels, and infrastructure changes have helped to improve the efficiency and effectiveness of transfers, which has had a direct impact on the cost of those operations.
In theory, it should be specified that the dinar charge that was scheduled to be imposed does not apply to 'link' transfers, internal transfers (that is, transfers from one customer's bank account to another customer's bank account), or permanent transfer orders that are completed in a sustainable way.
According to the timeline of events, the conversation amongst banks about imposing a dinar tax on individual electronic transfers began approximately four months ago, notably at the beginning of February during a meeting of the Banks Union's Operations Committee, but no collective decision was taken.
A few days later, another meeting was called to discuss the latest developments in the proposal to implement the proposed fee, and on February 13, one of the banks reported electronically that there was nothing to stop it, and that it actually charges a fee of half a dinar on every electronic local transfer to another bank.
On the same day, one of the traditional banks responded that there was nothing stopping the supervisor from imposing the fee, which is based on a list of fees approved by the CBK and set at a fee of 5 dinars on each individual transfer made through the branch to another bank, which eliminates the need for banks to obtain new supervisory approval, and which has been interpreted by the majority of banks as sufficient for supervision to impose the dinar fee.
At the same time, some banks indicated a wish to anticipate the view of the Federation of Banks' Compliance Unit, which is the most familiar with the CBK's conditions and directives in this respect.
On March 28, bank officials virtually gathered at 10:00 a.m. to agree to impose the dinar charge, with a deadline of June 5, 2022, and any bank can implement the tax before that date.
Meanwhile, one of the traditional banks announced that it will apply the charge before this date, and has done so since early April, while one bank rejected the proposal and another proposed seeking the Central Bank's clearance in advance, meaning that the decision was approved by 8 out of 10 banks.
According to unofficial banking statistics, banks conduct roughly 2.5 million electronic transfers of persons from one bank to another each year, with about 750,000 made by NBK clients, the same for KFH consumers, and about one million transfers to the rest of the banks.
And, given that "NBK" and "KFH" account for 60% of the market, this fee would bring banks revenue of around 2.5 million dinars every year, on top of the 881 million in profits they reported last year.
When it comes to the reasons why banks need to charge the dinar fee, banking policymakers cite several factors, the most prominent of which are:
1 – Enhancing maintenance procedures
2 – Digital infrastructure development
3 – Promote and improve cyber security
4 – Create payment options
5 – Partially covering the expenses charged by remittance and payment service providers